The Grasshopper, the Ant and European Indebtedness

The hard-won European agreement of 21 July underwriting the principle of a joint debt package is an important event in the history of European construction. In response to the economic crisis produced by the Covid-19 pandemic, the member states eventually agreed to a collective recovery plan. While politically essential, the agreement nonetheless raises many concerns and questions about the way the joint loan will eventually be repaid. After decades of tight fiscal discipline, closely overseen by Germany, many EU member states will probably allow their indebtedness to rise, in order to limit the social damage. This is worrying but, re-reading the economic history of the continent, as Jean-François Drevet does in this column, we can see that states (including Germany) have defaulted on their debts for many years now and have always found solutions that averted disaster. This look back at history is meant to be reassuring, but also stimulating: given so much past ingenuity, we should go forward and invest the money in this debt package without too many reservations.